Amalgamated Financial (AMAL) Earnings Call Transcript

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DATE

Thursday, Oct. 23, 2025, at 11 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Priscilla Sims Brown
• Executive Vice President & Chief Financial Officer — Jason M. Darby
• Executive Vice President — Sam Brown

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TAKEAWAYS

• Core EPS -- Core EPS (non-GAAP) was $0.91 for the quarter, bringing year-to-date core EPS to $2.66.
• Net Interest Income -- Net interest income was $76.4 million for the third quarter, exceeding guidance due to loan interest income recapture from a resolved problem asset.
• Net Interest Margin -- 3.6%, partly offset by a five basis point increase in cost of funds.
• Deposit Growth -- Total on-balance sheet deposits increased $149 million, or 1.9%, to $7.6 billion, excluding $112.3 million in temporary pension deposits; all segments contributed to growth.
• Segment Deposit Highlights -- Political deposits rose $235 million (19%) to $1.4 billion; climate and sustainability deposits up $86 million (21%).
• Loan Growth -- Loans grew $99 million, or 3.3%, in growth mode portfolios (multifamily, CRE, C&I), accelerating from the prior quarter's growth rate of 2.1%; C-PACE assessments grew $27.4 million (over 8%).
• Tangible Book Value -- Tangible book value per share was $25.31, Tangible book value per share has grown over 46% since September 2021, the CEO's first full quarter.
• Credit Quality -- Nonperforming assets declined $12.2 million (34.6%) to $23 million (0.26% of total assets).
• Net Charge-Offs -- with a $5.4 million charge-off on a resolved C&I credit and a $1.5 million charge-off (offset by a $600,000 recovery) on a legacy loan; remainder from consumer solar and business banking.
• Allowance for Credit Losses -- Allowance for credit losses on loans was $56.5 million, down $2.5 million; driven by $4.4 million aggregate reserve release, partly offset by increases tied to a $1.6 million multifamily loan and a $200,000 construction loan.
• Expenses -- Core non-interest expense was $43.4 million, up $2.9 million sequentially, mainly from a $2.2 million increase in compensation and a $500,000 boost in technology costs for digital transformation.
• Digital Modernization -- Integrated platform launched during the quarter, with early organizational productivity benefits cited by management.
• Capital Actions -- Approximately $10.4 million in shares repurchased and a $0.14 per share quarterly dividend paid; leverage ratio managed at 9.18% and TCE at 8.79%.
• Guidance Updates -- Management raised 2025 core pretax pre-provision earnings guidance to $164-$165 million (non-GAAP) and tightened net interest income guidance to $295-$296 million; a parallel 25 basis-point rate cut is projected to lower annual net interest income by $2.2 million.
• Loan Yields Portfolio Commentary -- New C&I originations averaged in the high 6% to low 7% range, real estate origination yields came in just above 6%.
• KBRA Credit Outlook -- The annual KBRA surveillance report revised Amalgamated’s outlook to positive.

SUMMARY

Amalgamated Financial (NASDAQ:AMAL) Management emphasized "across-the-board share gain" according to Priscilla Sims Brown in deposits and described a decisive resolution of a previously stressed $10.8 million loan, improving nonperforming asset metrics and credit quality ratios. The company highlighted the successful launch of a digital modernization effort, which is already enhancing operational productivity and supports continued scaling. Updated guidance reflects tighter ranges for both revenue and earnings, with the explicit expectation that future Fed rate cuts will pressure net interest income.

• Priscilla Sims Brown reiterated confidence in the bank’s ability to manage potential volatility in rent-stabilized multifamily exposures, stating, "We don't expect that we're going to see impact in the next 18 to 24 months" from possible New York City policy changes.
• CFO Darby indicated share repurchases will continue "until our share price rises to a level that we feel realistically reflects our forward earnings projection."
• Priscilla Sims Brown addressed recent regulatory and reputational focus on so-called "debanking," stating, "we don't expect to see any material risk to our business model or our customer base."

INDUSTRY GLOSSARY

• CRE: Commercial Real Estate lending, encompassing non-residential property financing typically for investment or business purposes.
• C-PACE: Commercial Property Assessed Clean Energy, a financing program allowing for repayment of clean energy project costs through property tax assessments.
• TCE: Tangible Common Equity, a key regulatory capital measure representing common equity less intangible assets.
• KBRA: Kroll Bond Rating Agency, a credit rating agency providing third-party risk evaluations to banks and other financial institutions.

Full Conference Call Transcript

Priscilla Sims Brown: Good morning, everyone, and thank you for joining us. Well, it was another good quarter. Amalgamated delivered core earnings per share of $0.91 in the third quarter, and we experienced strength on both sides of our balance sheet highlighted by across-the-board share gain in our deposit franchise, coupled with accelerating loan growth as our new lenders are already having an impact. Amalgamated has now delivered $2.66 year-to-date core earnings per share, which is about 3% growth. Making our case for an implied value of our stock well above where we have been trading recently.

One thing I'd like to remind us is that we are coming off of a 2024 year where we grew core EPS by over 18%, far exceeding most banks. So what we're doing in 2025 is just that much more remarkable, comparatively speaking. So for Q3, what stands out to me is mainly that we keep delivering great results. And the quality and sustainability of our earnings allow us to handle problem situations with ease. Last quarter, Jason discussed a $10.8 million syndicated commercial and business loan to an originator of consumer loans for renewable energy efficiency improvements that was under stress.

I'm happy to report the quick, successful, and final resolution of this loan during this quarter, with the final impact all absorbed within our core earnings. I use the word successful to reflect on the decisive action we took to exit a problem credit, negotiate what we felt to be the best near-term recovery value, and put the problem behind us so that our investors can see our overall credit portfolio quality with clarity. While, of course, we're not happy to absorb a loan loss or record a charge-off, the flip side to that is a nice improvement to our nonperforming assets and overall credit quality metrics.

Nonperforming assets decreased to $12.2 million or 34.6% to $23 million or 0.26% of total assets, and credit quality improved nearly $19 million to $79.2 million or 1.67% of total loans, which is the best ratio since I've been here. All that said, we recognize that the credit cycle is still in process. And we are acutely aware of some of the big reserves and charge-offs taken by some super regional banks recently. The best thing I can say is that you can be sure Amalgamated will be early in disclosure and decisive in our resolution. Now let's move on to some more fun stuff.

Back in the first quarter with the change in administration, we said we were built for this moment. Built to thrive. Nothing has changed there. We still are. Our mission, brand, and values resonate with our customers, which can be seen in how our production team performed this quarter. Loans grew by $99 million across our growth mode portfolios of multifamily, CRE, and C&I. About 3.3% growth, a nice acceleration from the second quarter's growth rate of 2.1%. This was in line with our quarterly targets and benefited from the addition of some C&I that added to our origination team in the second quarter. Our PACE portfolio also saw an acceleration as total assessments grew $27.4 million.

The strength came from over 8% growth in C-PACE, where there is a rapidly growing range of opportunity, and to capitalize on our new originator partnership. And then there's our deposit franchise. Wow. These folks are amazing. We just keep taking market share in our deposit gathering as all of our segments saw growth during the quarter, driving over $415 million of new deposit generation. Very few banks our size can do what we do. Looking at our segments, political was a standout with deposits increasing $235 million or 19% to $1.4 billion as fundraising begins to accelerate looking to the midterm elections, which are now only a year away.

Our climate and sustainability segment was also a standout, as deposits increased $86 million or 21%. Not-for-profit also grew $42 million. Labor grew $26 million. And overall, it was just another great quarter for our deposit gathering team. For the most part, I like what we see. Still have some work to do, no doubt, but the bank is firing on most cylinders, which provides real optimism as we look to the future.

To support our growth and to ensure we efficiently scale our operations, we have been investing in a fully integrated digital modernization program which will drive improved productivity, provide a holistic view of our customers to better understand their needs, provide more customized solutions, and ultimately, deliver more revenue growth. This platform went live in the third quarter, and we're already seeing the benefits across our organization as we continue to manage the business to key metrics. To close, I could not be more excited with what the future holds for Amalgamated.

Our ability to deliver balanced and predictable contribution from lending channels is starting to show, and I'm happy that we have geographic diversity which will help us manage future loan growth targets. We are keeping a close eye on the policy debate playing out in New York City. But regardless, we feel very good about our current rent stabilization exposure. We've added some more disclosure for you this quarter in the presentation on slide and we're happy to take your questions on that. There's also more I could talk about, but we wanted to get to your questions sooner this time. So let me turn the call over to Jason.

Jason M. Darby: Thanks, Priscilla. Starting off with some key highlights on slide three, net income was $20.8 million or $0.88 per diluted share, while core net income, a non-GAAP measure, was $27.6 million or $0.91 per diluted share. Our net interest income grew by 4.9% to $76.4 million, which exceeded the high end of our guidance range bolstered a bit by the recapture of some loan interest income from the payoff of one of our legacy problem assets. Additionally, our net interest margin increased five basis points to 3.6%. Margin expansion was partially offset by a five basis point rise in our cost funds as we carried a higher average balance of interest-bearing deposits in the quarter.

It's worth noting that our average spot rate paid in deposits declined eight basis points after we repriced our deposits following the Fed's 25 basis point rate cut in September. Deposits were strong. Excluding a $112.3 million of temporary pension funding deposits, total on-balance sheet deposits increased $149 million or 1.9% to $7.6 billion. We also held $265 million of deposits off-balance sheet at the end of the quarter. Continuing to Slide four, we look at some of our key performance metrics during the third quarter. Starting on the left, our tangible book value per share increased $0.98 or 4% to $25.31 and has grown over 46% since September 21, which was still his first full quarter as CEO.

Tangible book value is a key component of management's long-term equity incentives, which tightly align its management with our shareholders. Our leverage ratio was managed well at 9.18%. During the quarter, we used capital and improved our TCE to 8.79%, absorbed $4.5 million of losses to improve our credit quality metrics, return capital to shareholders through approximately $10.4 million in share repurchases, and to pay our $0.14 quarterly dividend. Looking forward, we expect to continue our buybacks over the coming quarters until our share price rises to a level that we feel realistically reflects our forward earnings projection. Our core revenue per diluted share was $2.84, a 17¢ increase in the prior quarter.

This increase was due to a combination of higher net interest income and the effect of our share repurchases. Importantly, this metric shows our balance sheet optimization and commitment to positive operating leverage. We're laser-focused on driving this message to the top of the broader industry peer group. Jumping ahead to slide nine, core non-interest expense is $43.4 million, an increase of $2.9 million in the linked quarter. This was mainly driven by a $2.2 million increase in employee compensation expense as well as an expected $500,000 increase in technology spend due to continued investment in digital transformation development.

Overall, we're pretty much right where we want to be with expense management, and we're able to add some additional compensation accruals for full-year performance is starting to look pretty promising. I'm also really happy with our core efficiency ratio of 50.17%, which places Amalgamated on average at the top of the pack from banks in the $5 to $10 billion range as well as banks in the $10 to $100 billion range. We'll continue to keep our target of approximately $170 million for annual OpEx, though there may be some upside to that number. Hopping to slide 10. Net charge-offs were 0.81% of total loans. Obviously, this is an elevated number, but there's some good news within this metric.

First, as Priscilla mentioned, was the final resolution of the problem C&I credit we talked about in the second quarter. That resulted in a $5.4 million charge-off, but the P&L impact this quarter was only $3.1 million due to prior period reserves. This credit situation is done. And, thankfully, we don't have to speculate about it any further. Another bit of good news was the note sale of a legacy nonperforming leverage loan. This resulted in a $1.5 million charge-off, but also a small recovery of $600,000 that flowed through our net provision expense during the quarter.

The remainder of the charge-offs related to normal activity from our consumer solar and business banking portfolios, although each showed some modest improvement from the prior quarter. One thing we thought would be interesting to note is the bank received a revised outlook to positive from KBRA during our annual credit rating surveillance report completed during the quarter as well. Turning to slide 11, the allowance for credit losses on loans decreased $2.5 million to $56.5 million. The ratio of allowance to total loans was 1.18%, a decrease of seven basis points from 1.25% in the prior quarter.

The decrease was primarily the result of a $2.3 million net reserve release related to the resolution of the loan I just discussed and also by a $2.1 million reserve release related to the resolution of a legacy leverage loan credit. This was partially offset by a $1.6 million increase in reserves related to one $2.8 million multifamily loan that went nonaccrual in the quarter, and a $200,000 reserve increase for a nonperforming construction loan. Finishing on slide 16, turning to our outlook. Today, we are raising our full-year 2025 core pretax pre-provision earnings guidance to $164-$165 million.

And tightening our 2025 net interest income guidance to $295 to $296 million, which considers the effect of the forward rate curve of 2025. Additionally, we estimate an approximate $2.2 million decrease in annual net interest income for a parallel 25 basis point decrease in interest rates beyond what the forward curve currently suggests. Briefly looking at the 2025, we target average balance sheet size at approximately $8.65 billion and our net interest income to range between $75 million and $76 million.

We expect our net interest margin to stay near flat relative to our Q3 mark as we believe our loan yields will drop due to repricing as we model the Fed to cut rates again by a total of 50 basis points in Q4. Based on these targets, we've gone ahead and done the implied full-year math on the guidance page so you can easily compare it to our 2024 results. As well as our baseline 2025 performance targets. We're now happy to take your questions. Operator, please open up the line for Q&A.

Operator: Thank you. At this time, we'll be conducting a question and answer session. You may press star 2 if you would like to remove your question from the queue. Before pressing the star keys. One moment please while we poll for questions. Our first question comes from Mark Fitzgibbon with Piper Sandler. Please proceed with your question.

Mark Fitzgibbon: Good morning. First question I had, I was curious in the slide deck on Page 11, you mentioned that there was a $1.9 million specific reserve. What is that against?

Jason M. Darby: Hey, Mark. This is Jason. The specific reserve that was built is related to one of our multifamily properties that we had an appraisal put against. It's one of the properties that we had already been through or refinanced or renewal about a year ago. It had a little bit of an equity infusion. We did a modification of terms. It had been paying, and then we received an updated appraisal as part of our normal process for evaluating sub credits that are real estate oriented, and the valuation didn't look appropriate for the value of the property that we had originally been carrying on the books.

So the reserve was put in place to effectively account for a change in the LTV. As of right now, the credit is moving to a nonaccrual status, and we're trying to figure out a path forward with that particular deal. But the clarity is pretty good at the moment. We just felt the reserve was appropriate. And as we've said before, when we see problems in the portfolio, you'll see our coverage ratios move and that has been reflected also in the overall coverage for the portfolio moving up to 30 basis points from the 20 we had it at previously.

Mark Fitzgibbon: Okay. And then, Priscilla, you had mentioned before your comments about changes to the rent regulated multifamily market in New York and you guys feeling comfortable with that. I guess I'm curious, in the event that we do have a mayor of Mamdani and he freezes rents, through the rent guidelines board, would that change your outlook for that rent regulated multifamily business? Is it likely that you'd sort of slow down growth in it? Or maybe exit and sell some of the portfolio?

Priscilla Sims Brown: No. Thank you, Mark, for the question. I'm sure it's on the minds of a number of people, certainly those watching New York politics. By the way, this is why we're giving more disclosure. You see it on page thirteen and fourteen. And we'll continue to monitor the situation closely and update you as we learn more. But we don't expect that we're going to see impact in the next eighteen to twenty-four months. Certainly, based on those changes. You know, I do think it's important to think about the fact that's one tool, and it's the one that's talked about quite a lot, this notion of rent freezes or stabilization.

But there are other tools as well, zoning reform, public-private partnerships, community land trust, which Mondami has spoken about. And certainly office to residential conversion, social housing, all those things. And so keep in mind that, you know, there's real potential upside if a balanced approach leads to the creation of more housing in New York. And that's one of the things we're looking at as well.

Mark Fitzgibbon: Okay. And then sort of unrelated, it seems like we read every day that the Department of Energy is canceling or pulling funding from green energy projects. I think the Department of Energy has canceled something like $8 billion worth of projects and pulled funds back. And I know in the past you guys have sort of said, you know, the funds were allocated, so you weren't concerned. But now that the administration is pulling those dollars back, I guess I'm wondering if you're concerned about any of your various projects related to that. And how those are likely to sort of play out if federal funding evaporates?

Sam Brown: Hey, Mark. It's Sam. I'll jump in on that one. So, look, you know, in the existing portfolio, we feel totally great about where we are. Those projects are already in the ground and as we've talked about in the past, their funding streams, including their tax credit provisions, including any federal contribution is locked in. The other thing I'll mention is we talked about back in the second quarter call the acceleration of projects and transactions in order to hit that deadline that will happen in eighteen and twenty-four months. You certainly saw some of that pull through happen in our C&I growth for the quarter, which we are very pleased about.

And we're also seeing that in the pipeline as well. The other thing I'll add just on the broader market spectrum, as you mentioned about what does that mean in general as things change. You've heard us talk a lot about growing energy demand, citing a bunch of stats and figures from various well-respected authorities. Kind of the best thing I would throw out is this, there is a new kind of base case assumption about what renewable energy deployment looks like being only 4% less than what it was before the budget was passed last year. So, again, we feel good about that.

And when you couple that with how energy demand is expected to continue to rise between two and a half and three and a half percent per year, getting up to 25% by 2030, 78% by 2050, the demand here dictates that there's going to be a need to finance these projects. And so while, yes, federal capital contribution might change, the reality is this industry is alive and well. And it's gonna have a lot of participants in it financing these projects for years to come.

Mark Fitzgibbon: It's hard to believe, Sam, that none of the projects you're involved in the fund federal funds have been pulled back from. And it's also it's hard to believe that if you don't have federal funding, the projects still pencil out financially. I guess I'm curious, just from the outside looking in, reading the media every day, with money evaporating, it just seems a stretch to understand that.

Sam Brown: Yep. And I think, you know, a lot of what is out there, Mark, is funds being pulled back for projects that haven't started yet. For example, I know that there was the largest project in Nevada certainly a big headline recently. In our portfolio, everything we financed is already underway. Has in an operating state, those projects are not in jeopardy because they are underway. Where there are projects that are still in pre-dev, I think that is a completely valid concern. That is not something we have present on our balance sheet and not an area we focused on as we've built out our portfolio.

Mark Fitzgibbon: Okay. Last question I had. I guess I'm curious, you know, we're in kind of unusual times with what's going on in Washington and all this sort of conversation around debanking. I know you guys have been written about in some articles in the journal and elsewhere. I guess I'm curious, how can you best position Amalgamated so that you don't become a target for the regulators given their aggressive debanking efforts?

Priscilla Sims Brown: Thank you, Mark. Yeah. There's a lot of noise in the news, and we certainly see it all as well, and we know you do. I guess the best way I can address that is to say, you know, we continue to be a bank that follows all laws and regulations, and we always will. We focus on risk management, and we focus on solid, consistent performance. Organizations that manage with appropriate KYC and BSA requirements, they know we're open for business, and you've seen that on both sides of the balance sheet consistently. Since these concerns started to be manifested in the last this year certainly. If you look at the core deposit growth, it's phenomenal.

We continue to see growth across all of our segments, not just some. And so that, you know, those solid returns and strong profitability is really our best answer to what you're hearing. And, you know, we don't expect to see any material risk to our business model or our customer base. Based on the fact that we are a bank first and foremost.

Operator: Thank you. Our next question comes from Mark Shutley with KBW. Please proceed with your question.

Mark Shutley: Hey, guys. Good morning. So on expenses, you mentioned you still target the $170 million a year, I think. But expenses came in a little higher than we were expecting in the third quarter. I know you've got digital transformation underway, and so it sounds like a better run rate for quarterly expenses is probably somewhere in between this quarter and last quarter. Just trying to think about the moving pieces of the PPNR guide. Thanks.

Jason M. Darby: Yeah. Sure, Mark. I'll take it. This is Jason. So on expenses, I think this quarter came in very much what we're expecting in terms of our overall progression towards our $170 million annual OpEx guidance. And we have been talking about for a couple of quarters, the ramping in expenses that was going to happen as we got to the back half of the year, and we were in a better spot than I was really expecting at the end of the second quarter. Here in the third quarter, we also did very, very well on the expense side.

Now we were able to put a little bit of accrual in this quarter for some compensation-related expense that would be tied to year-end performance as it's becoming clearer and clearer that we're going to have a pretty strong year. So that really was the top-off on maybe the expense expectation you had versus where we came in at about 43.3 for the quarter. But if you look at it year-to-date, we're at $125 million versus an average target of $127.5. So we're doing better there. Core efficiency is still really, really strong. And to your comment about what the fourth quarter ought to look like, I would expect it to look very similar to Q3.

Now we've said that $170 million is still the target, but there's some potential upside there. If we hit expenses that looked a lot like Q3, we'd probably have some upside beat on our $170 million target. So we sort of leave that out there as a conservative marker because in the fourth quarter, occasionally, things pop up that require some additional expense to cure year-end processes relative to audits or other types of things that pop up towards the end of the year. So all things equal, I like a run rate of very similar to what we had for the third quarter as the projection for the fourth quarter.

And in theory, if we hit that, there's some upside potential to the $170 million overall target.

Mark Shutley: Okay. Thanks. That's helpful. And then maybe switching gears, you mentioned the loan yields. I think you expect that to come down next quarter. Obviously, those saw a nice increase this quarter and kinda drove the NIM, you know, but with a couple rate cuts expected, totally get that. But we're just wanting to dig in a little bit more and see maybe what new originations were coming on at in the quarter and sort of any additional color you have there. Thanks.

Jason M. Darby: Yeah. Perfect. Great question. Let me start off with the loan yields and the decline. I think, obviously, picked up on our projection of the 50 basis points of the total rate cuts, and that's obviously going to have an impact on some of the variable pricing we have in the C&I portfolio. And also, did make a comment. There was a bit of a one-timer that flowed through with the recapture of some interest income for a very long-dated problem credit. That we've had on our books that we're able to get a full payoff from recovery on. So that counted for about nine basis points of loan yield in this quarter.

So most of the drop will probably be just tied to the resetting of net interest income. I'm sorry. Noninterest income. Sorry about that. Net interest income for the quarter absent that one-time effect. For any current period. Now in terms of the bring-ons, we have had a pretty decent quarter in terms of overall bring-ons. I think where we were on the C&I side was in the high sixes. Maybe even crossing to low sevens in certain places for the quarter. The real estate portfolio came in just above 6%. But you're strong yields given the credit quality that we're seeping.

And then going forward for the fourth quarter, we're pretty much saying it's gonna be about 30 to 50 basis points lower just as a result of the repricing. To figure somewhere in the six fifty to maybe six seventy-five range on C&I deals, and maybe close to 6%, maybe five seventy-five. I'm kinda getting a little bit wrong there. Probably the 25 basis point decline in the bring-on yields from the current quarter. The only other thing to point out is that we still have a very strong origination on the pay side, which drives a yield of about 7%.

Now we'll see probably a little bit of erosion there, but those coupons are pretty strong, and they really help the margin from a rollover perspective on the yield side.

Mark Shutley: Thanks for all the detail there. That's it for me.

Jason M. Darby: Appreciate it.

Operator: Thank you. We have reached the end of the question and answer session. I would like to turn the call back over to Priscilla Sims Brown for closing comments.

Priscilla Sims Brown: Thank you, and thank you for those very good questions. I'm sure they will continue as we follow-up today and in the future around the quarter. But I want to just take a second again, as we do every quarter, to thank our employees for their hard work and the dedication to the bank and our customers. We know our success would not be possible without the commitment and the determination of our talented team of bankers. To conclude, I'm very pleased with our third quarter results, which demonstrate our leading deposit franchise, which is unique in the industry.

And when you combine that with our lending platform, which I also believe is unique, we are at an important inflection point. Taken together, we're poised to deliver continued organic growth as we further build the earnings power of the bank and as we focus on delivering long-term value for shareholders. I look forward to updating you on our progress on the fourth quarter call and taking your calls in the meantime. Thank you.

Operator: This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation. Enjoy the rest of your day.

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